Bank of Japan vows ‘nimble response’ after surge in long-term bond charges | USAEMALL.com

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The Bank of Japan said it would make “nimble responses” to any rapid rise in long-term interest rates as it announced plans to slow the pace at which it would taper its bond buying in the next fiscal year.

The Japanese central bank’s decision to slow the pace at which it cuts its monthly bond purchases came as its policy committee concluded a two-day meeting on Tuesday with a unanimous vote to hold short-term interest rates at 0.5 per cent.

In mid-May, weak investor demand at auctions of long-dated Japanese government bonds, along with high volatility in global debt markets caused the yields to surge to record highs.

Traders at the time said the moves reflected growing concerns not only over the global economic outlook, but also over the effects of the BoJ’s plans to taper its bond purchases.

The bank said on Tuesday it would not make any changes to the current tapering programme, which was decided in July 2024 and is set to run until the end of the current fiscal year in March 2026.

Under the plan, monthly bond purchases are being cut by ¥400bn ($2.8bn) a quarter, from their current level of ¥4.1tn.

But under the bank’s plan for the fiscal year beginning in April, the BoJ said on Tuesday it would reduce its planned purchases by just ¥200bn each quarter, with the aim of reaching a monthly level of ¥2.1tn by March 2027.

The interest rate decision was in line with the expectations of almost all analysts, some of whom now expect the BoJ to delay its rate normalisation plans, forecasting no rate increases until next year.

Benjamin Shatil, senior economist at JPMorgan in Tokyo, said the BoJ was walking a fine line in attempting to contain volatility as it increasingly stepped away from the market and embarked on an unwinding of more than a decade of liquidity expansion.

Shatil added that the BoJ’s gradual retirement of its experiment in ultra-loose monetary policy had implications not just for Japan but for global debt markets. “Market focus is increasingly shifting from the BoJ’s policy rate normalisation path to its multiyear balance sheet rundown,” he said.

In its statement published after the meeting, the BoJ reiterated previous warnings that it remained “extremely uncertain” how global trade and other policies would evolve, and what impact those measures would have on economic activity and prices.